United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from ________ to ________
Commission File Number 0-14354
FIRST INDIANA CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 35-1692825
----------------------------------------- --------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
135 North Pennsylvania Street,
Indianapolis, IN 46204
----------------------------------------- --------------------------------------
(Address of principal executive office) (Zip Code)
(317) 269-1200
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Class Shares
----------------------------------------- --------------------------------------
Common Stock, par value $0.01 per share Outstanding at 10/31/2000
12,443,419
<PAGE>
FIRST INDIANA CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
Part I Financial Information
Item 1. Financial Highlights 3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2000, 4
December 31, 1999, and September 30, 1999
Condensed Consolidated Statements of Earnings for the Three 5
and Nine Months Ended September 30, 2000 and 1999
Condensed Consolidated Statements of Shareholders' Equity for 6
the Nine Months Ended September 30, 2000
Condensed Consolidated Statements of Cash Flows for the 7
Nine Months Ended September 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition 13
and Results of Operations
Item 3. Disclosures About Market Risk 22
Part II Other Information 23
Signatures 25
<PAGE>
Financial Highlights
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
For the Three Months Ended
September 30,
------------------------------------
2000 1999
---------------- ----------------
Total Interest Income $ 45,042 $ 37,545
Total Interest Expense 25,181 19,301
Net Earnings 6,470 6,622
Basic Earnings Per Share 0.51 0.53
Diluted Earnings Per Share 0.50 0.52
Dividends Per Share 0.14 0.13
Net Interest Margin 3.89 % 3.99 %
Net Interest Spread 3.14 3.38
Return on Average Equity 13.58 15.60
Return on Average Assets 1.23 1.38
Average Shares Outstanding 12,611,908 12,509,044
Average Diluted Shares Outstanding 12,885,559 12,788,964
For the Nine Months Ended
September 30,
------------------------------------
2000 1999
---------------- ----------------
Total Interest Income $ 128,482 $ 107,845
Total Interest Expense 70,099 55,527
Net Earnings 18,166 16,273
Basic Earnings Per Share 1.44 1.29
Diluted Earnings Per Share 1.41 1.27
Dividends Per Share 0.42 0.39
Net Interest Margin 3.90 % 3.92 %
Net Interest Spread 3.19 3.30
Return on Average Equity 13.13 12.90
Return on Average Assets 1.17 1.16
Average Shares Outstanding 12,613,921 12,598,219
Average Diluted Shares Outstanding 12,848,081 12,853,797
At September 30,
------------------------------------
2000 1999
---------------- ----------------
Assets $ 2,125,859 $ 1,878,586
Loans - Net 1,794,977 1,614,055
Deposits 1,403,083 1,272,985
Shareholders' Equity 191,354 172,898
Shareholders' Equity/Assets 9.00 % 9.20 %
Shareholders' Equity Per Share $ 15.39 $ 13.82
Market Closing Price 26.06 21.00
Price/Earnings Multiple 13.86 x 12.40 x
<PAGE>
Condensed Consolidated Balance Sheets
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
2000 1999 1999
------------- ------------ -------------
<S> <C> <C> <C>
Assets
Cash $ 35,288 $ 30,941 $ 32,547
Federal Funds Sold 34,000 30,500 42,000
----------- ----------- -----------
Total Cash and Cash Equivalents 69,288 61,441 74,547
Investments Available for Sale 101,602 103,169 45,364
Mortgage-Backed Securities Available for Sale 50,145 54,734 58,457
Loans Held for Sale 64,221 32,567 81,319
Loans Receivable 1,763,424 1,669,614 1,561,501
Less Allowance for Loan Losses 32,668 28,759 28,765
----------- ----------- -----------
Loans Receivable - Net 1,794,977 1,673,422 1,614,055
Premises and Equipment 18,528 17,071 16,553
Accrued Interest Receivable 16,536 13,554 12,056
Real Estate Owned - Net 2,583 1,227 2,121
Goodwill 13,958 1,616 1,634
Prepaid Expenses and Other Assets 58,242 53,540 53,799
----------- ----------- -----------
Total Assets $ 2,125,859 $ 1,979,774 $ 1,878,586
=========== =========== ===========
Liabilities and Shareholders' Equity
Liabilities
Non-Interest-Bearing Deposits $ 114,543 $ 114,356 $ 148,752
Interest-Bearing Deposits 1,288,540 1,197,759 1,124,233
----------- ----------- -----------
Total Deposits 1,403,083 1,312,115 1,272,985
Federal Home Loan Bank Advances 361,754 366,854 371,854
Short-Term Borrowings 113,608 98,754 33,222
Accrued Interest Payable 7,531 5,605 4,825
Advances by Borrowers for Taxes and Insurance 14,092 1,377 4,503
Other Liabilities 34,437 17,966 18,299
----------- ----------- -----------
Total Liabilities 1,934,505 1,802,671 1,705,688
----------- ----------- -----------
Shareholders' Equity
Preferred Stock, $.01 Par Value: 2,000,000
Shares Authorized; None Issued - - -
Common Stock, $.01 Par Value: 33,000,000 Shares
Authorized; 13,536,316, 13,611,965, and 13,602,157
Shares Issued, Including Shares in Treasury 135 136 136
Paid-In Capital in Excess of Par 39,502 37,962 37,986
Retained Earnings 165,981 153,710 148,767
Accumulated Other Comprehensive Income (Loss) (18) (724) (10)
Treasury Stock-at Cost, 1,101,671, 1,088,813,
and 1,088,813 Shares (14,246) (13,981) (13,981)
----------- ----------- -----------
Total Shareholders' Equity 191,354 177,103 172,898
----------- ----------- -----------
Commitments and Contingent Liabilities - - -
----------- ----------- -----------
Total Liabilities and Shareholders' Equity $ 2,125,859 $ 1,979,774 $ 1,878,586
=========== =========== ===========
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Earnings
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Interest Income
Loans $ 41,785 $ 34,658 $ 118,834 $ 99,612
Investments 1,689 1,614 5,045 4,602
Mortgage-Backed Securities 871 832 2,741 2,283
Dividends on Federal Home Loan Bank Stock 462 370 1,285 1,067
Federal Funds Sold and Interest-Bearing Deposits 235 71 577 281
-------- --------- --------- -----------
Total Interest Income 45,042 37,545 128,482 107,845
-------- --------- --------- -----------
Interest Expense
Deposits 17,111 13,812 47,411 40,993
Federal Home Loan Bank Advances 6,386 4,851 18,059 12,798
Short-Term Borrowings 1,684 638 4,629 1,736
-------- --------- --------- -----------
Total Interest Expense 25,181 19,301 70,099 55,527
-------- --------- --------- -----------
Net Interest Income 19,861 18,244 58,383 52,318
Provision for Loan Losses 2,439 1,950 7,317 6,870
-------- --------- --------- -----------
Net Interest Income After Provision For Loan Losses 17,422 16,294 51,066 45,448
-------- --------- --------- -----------
Non-Interest Income
Loan and Deposit Charges 1,982 1,614 5,533 4,351
Sale of Investments Available For Sale (211) (1,104) (168) (886)
Sale of Mortgage-Backed Securities Available for Sale -- (2,129) -- (2,129)
Sale of Loans 600 441 2,923 5,009
Sale of Deposits -- 7,590 -- 7,590
Sale of Loan Servicing 1,197 -- 1,197 905
Loan Servicing Income 304 326 899 839
Loan Fees 903 795 2,235 2,747
Trust Fees 460 407 1,135 696
Other 668 103 2,306 1,230
-------- --------- --------- -----------
Total Non-Interest Income 5,903 8,043 16,060 20,352
-------- --------- --------- -----------
Non-Interest Expense
Salaries and Benefits 7,086 7,390 20,821 21,681
Net Occupancy 691 725 2,038 2,288
Equipment 1,493 1,798 4,450 4,359
Deposit Insurance 69 186 202 544
Real Estate Owned Operations - Net 146 116 431 405
Office Supplies and Postage 457 526 1,346 1,602
Other 2,791 3,065 8,176 8,675
-------- --------- --------- -----------
Total Non-Interest Expense 12,733 13,806 37,464 39,554
-------- --------- --------- -----------
Earnings Before Income Taxes 10,592 10,531 29,662 26,246
Income Taxes 4,122 3,909 11,496 9,973
-------- --------- --------- -----------
Net Earnings $ 6,470 $ 6,622 $ 18,166 $ 16,273
======== ========= ========= ===========
Basic Earnings Per Share $ 0.51 $ 0.53 $ 1.44 $ 1.29
======== ========= ========= ===========
Diluted Earnings Per Share $ 0.50 $ 0.52 $ 1.41 $ 1.27
======== ========= ========= ===========
Dividends Per Common Share $ 0.14 $ 0.13 $ 0.42 $ 0.39
======== ========= ========= ===========
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Shareholders' Equity
First Indiana Corporation and Subsidiaries
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
Paid-In
Capital
Common Stock In Excess Retained
Shares Amount of Par Earnings
-------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 12,523,152 $ 136 $ 37,962 $ 153,710
Comprehensive Income:
Net Earnings - Year to Date -- -- -- 18,166
Unrealized Gain on Securities Available for Sale of $774,
Net of Income Taxes and Reclassification Adjustment
of $168 -- -- -- --
Total Comprehensive Income (Loss)
Common Stock Issued Under Restricted Stock Plans
- Net of Amortization 36,000 -- 792 (594)
Exercise of Stock Options 74,960 1 482 --
Redemption of Common Stock (2,651) -- (56) --
Tax Benefit of Option Compensation -- -- 230 --
Dividends on Common Stock ($0.42 per share) -- -- -- (5,301)
Purchase of Treasury Stock (15,000) -- -- --
Reissuance of Treasury Stock 2,142 -- 28 --
Option Consideration related to Somerset Merger -- -- 3,327 --
Redemption of Common Stock related to Somerset Merger (2,758,467) (28) (48,935) --
Issuance of Common Stock related to Somerset Merger 2,574,509 26 45,672 --
----------- ------ --------- ----------
Balance at September 30, 2000 12,434,645 $ 135 $ 39,502 $ 165,981
=========== ====== ========= ==========
<CAPTION>
Accumulated
Other Total
Comprehensive Treasury Shareholders'
Income (Loss) Stock Equity
--------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $(724) $(13,981) $ 177,103
Comprehensive Income:
Net Earnings - Year to Date -- -- 18,166
Unrealized Gain on Securities Available for Sale of $774,
Net of Income Taxes and Reclassification Adjustment
of $168 706 -- 706
---------
Total Comprehensive Income (Loss) 18,872
---------
Common Stock Issued Under Restricted Stock Plans
- Net of Amortization -- -- 198
Exercise of Stock Options -- -- 483
Redemption of Common Stock -- -- (56)
Tax Benefit of Option Compensation -- -- 230
Dividends on Common Stock ($0.42 per share) -- -- (5,301)
Purchase of Treasury Stock -- (283) (283)
Reissuance of Treasury Stock -- 18 46
Option Consideration related to Somerset Merger -- -- 3,327
Redemption of Common Stock related to Somerset Merger -- -- (48,963)
Issuance of Common Stock related to Somerset Merger -- -- 45,698
------ --------- ----------
Balance at September 30, 2000 $ (18) $(14,246) $ 191,354
====== ========= ==========
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Cash Flows
First Indiana Corporation and Subsidiaries
(Dollars in Thousands)
(Unaudited) Nine Months Ended September 30,
2000 1999
--------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Earnings $ 18,166 $ 16,273
Gain on Sale of Deposits, Loans, Mortgage-Backed Securities, and Investments (2,755) (8,863)
Amortization Net Premium, Prepaid Assets, and Negative Goodwill (384) 1,519
Amortization of Restricted Stock Plan 198 335
Depreciation of Fixed Assets 2,171 1,820
Accretion of Loans and Mortgage-Backed Securities 565 (685)
Provision for Loan Losses 7,317 6,870
Origination of Loans Held for Sale Net of Principal Collected (227,937) (526,496)
Proceeds from Sale of Loans Held for Sale 200,250 563,492
Tax Benefit of Stock Option Compensation 230 427
Net Change in:
Accrued Interest Receivable (2,982) (376)
Other Assets (8,217) (21,622)
Accrued Interest Payable 1,926 2,179
Other Liabilities (2,275) 2,267
--------------------------------------
Net Cash Provided (Used) by Operating Activities (13,727) 37,140
Cash Flows from Investing Activities
Proceeds from Sale of Investments Available for Sale 22,255 142,500
Proceeds from Sales of Mortgage-Backed Securities Available for Sale - 55,752
Proceeds from Maturities of Investment Securities Available for Sale 2 4,775
Purchase of Investment Securities Available for Sale (20,000) (80,000)
Purchase of Mortgage-Backed Securities Available for Sale - (86,126)
Principal Collected and Maturities of Mortgage-Backed Securities 4,780 769
Originations of Loans Net of Principal Collected (133,563) (166,563)
Proceeds from Sale of Loans 41,112 40,055
Purchase of Premises and Equipment (2,909) (2,169)
Cash Acquired through Somerset Merger 1,561 -
Proceeds from Sale and Disposal of Premises and Equipment 10 1,621
--------------------------------------
Net Cash Used by Investing Activities (86,752) (89,386)
Cash Flows from Financing Activities
Net Change in Deposits 90,968 165,007
Sale of Deposits - (112,350)
Repayments of FHLB Advances (635,101) (552,087)
Borrowings of FHLB Advances 630,001 596,694
Net Change in Short Term Borrowings 14,854 (20,997)
Net Change in Advances by Borrowers for Taxes and Insurance 12,715 2,545
Stock Option Proceeds and Redemption of Common Stock 427 531
Purchase of Treasury Stock (283) (5,299)
Reissuance of Treasury Stock 46 -
Cash Dividends Paid (5,301) (4,904)
--------------------------------------
Net Cash Provided by Financing Activities 108,326 69,140
Net Increase in Cash and Cash Equivalents 7,847 16,894
Cash and Cash Equivalents at Beginning of Period 61,441 57,653
--------------------------------------
Cash and Cash Equivalents at End of Period $ 69,288 $ 74,547
======================================
Interest on Deposits, Advances, and Other Borrowings 68,173 53,348
Income Taxes 13,089 12,933
Transfer from Loans to REO 6,375 7,620
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
FIRST INDIANA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2000
(Unaudited)
Note 1 - Basis of Presentation
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instruction to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (comprising only normal recurring
accruals) necessary for a fair presentation of the condensed consolidated
financial statements have been included. Results for any interim period are not
necessarily indicative of results to be expected for the year. The condensed
consolidated financial statements include the accounts of First Indiana
Corporation and its subsidiaries ("Corporation"). The principal subsidiary of
the Corporation is First Indiana Bank and its subsidiaries ("Bank"). A summary
of the Corporation's significant accounting policies is set forth in Note 1 of
the Notes to Consolidated Financial Statements in the Corporation's Annual
Report on Form 10-K/A for the year ended December 31, 1999.
Note 2 - Earnings Per Share
Basic earnings per share for 2000 and 1999 were computed by dividing
net earnings by the weighted averages shares of common stock outstanding
(12,611,908 and 12,509,044 for the three months ended September 30, 2000 and
1999 and 12,613,921 and 12,598,219 for the nine months ended September 30, 2000
and 1999). Diluted earnings per share for 2000 and 1999 were computed by
dividing net earnings by the weighted average shares of common stock and common
stock that would have been outstanding assuming the issuance of all dilutive
potential common shares outstanding (12,885,559 and 12,788,964 for the three
months ended September 30, 2000 and 1999 and 12,848,081 and 12,853,797 for the
nine months ended September 30, 2000 and 1999). Dilution of the per-share
calculation relates to stock options.
<PAGE>
Note 3 - Allowance for Loan Losses and Real Estate Owned
Allowances have been established for losses on loans and real estate
owned ("REO"). The provisions for losses charged to operations are based on
management's judgment of current circumstances and the credit risk of the loan
portfolio and REO. Management believes that these allowances are adequate to
provide for loan losses inherent in the loan and REO portfolios. While
management uses available information to recognize losses on loans and REO,
future additions to the allowances may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examinations, periodically review these allowances and may require the
Corporation to recognize additions to the allowances based on their judgments
about information available to them at the time of their examination.
Note 4 - Segment Reporting
The Corporation's business units are primarily organized to operate in
the banking industry, and are determined by the products and services offered.
The consumer segment includes the origination, sale, servicing, and portfolio
activities of both home equity and installment loans, and the residential
segment encompasses the origination, sale, servicing, and portfolio of both
residential first mortgage and Community Reinvestment Act loans. The business
segment originates construction, commercial, and commercial real estate loans,
and provides traditional cash management services to business customers. The
Bank's investment portfolio management is included in the treasury segment. The
retail segment includes the Bank's 23-branch network, as well as virtual banking
services, which were introduced in February 1998. FirstTrust, which commenced
operations in the first quarter of 1999, provides trust and advisory services to
the Bank's customers. Beginning in the fourth quarter of 2000, operations from
the Somerset merger will be incorporated into segment reporting. A portion of
Somerset's operations will be incorporated into the current Retail and Trust
segments and the remainder will be included in a new segment referred to as
Somerset Financial Services. Revenues in the Corporation's segments are
generated from loans, deposits, investments, servicing fees, loan sales, and
trust and advisory services. There are no foreign operations.
<PAGE>
<TABLE>
<CAPTION>
Segment Reporting
Consumer Residential Business Treasury Retail FirstTrust
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Segment Assets $763,570 $ 541,549 $561,064 $ 220,830 $20,643 $904
Net Interest Income 6,445 1,700 5,821 704 4,261 --
Non-Interest Income 1,560 1,016 1,136 (212) 1,582 460
Intersegment Income 586 (89) -- -- -- --
Significant Noncash Items
Provision for Loan Losses 1,684 47 708 -- -- --
Earnings (Loss) before Income Taxes 6,137 2,225 4,340 56 2,307 138
<CAPTION>
Intersegment Third Quarter 2000
Total Segments Eliminations Consolidated Totals
----------------------------------------------------
<S> <C> <C> <C> <C>
Average Segment Assets $2,108,560 $ 3,583 (1) $2,112,143
Net Interest Income 18,931 930 (2) 19,861
Non-Interest Income 5,542 361 (3) 5,903
Intersegment Income 497 (497)(4) --
Significant Noncash Items
Provision for Loan Losses 2,439 -- 2,439
Earnings (Loss) before Income Taxes 15,203 (4,611)(3) 10,592
<CAPTION>
Consumer Residential Business Treasury Retail FirstTrust
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Segment Assets $660,461 $ 506,237 $501,756 $ 183,500 $54,348 $1,103
Net Interest Income 5,888 1,716 4,637 238 4,034 --
Non-Interest Income 1,093 (760) 897 4,320 1,271 407
Intersegment Income 3,224 1,583 (493) -- 276 --
Significant Noncash Items
Provision for Loan Losses 1,808 7 135 -- -- --
Earnings (Loss) before Income Taxes 7,556 368 3,724 4,286 1,099 (148)
<CAPTION>
Intersegment Third Quarter 1999
Total Segments Eliminations Consolidated Totals
----------------------------------------------------
<S> <C> <C> <C> <C>
Average Segment Assets $1,907,405 $ 11,790 (1) $1,919,195
Net Interest Income 16,513 1,731 (2) 18,244
Non-Interest Income 7,228 815 (3) 8,043
Intersegment Income 4,590 (4,590)(4) --
Significant Noncash Items
Provision for Loan Losses 1,950 -- 1,950
Earnings (Loss) before Income Taxes 16,885 (6,354)(3) 10,531
<CAPTION>
Consumer Residential Business Treasury Retail FirstTrust
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Segment Assets $737,449 $ 521,527 $563,144 $ 218,228 $20,573 $ 950
Net Interest Income 18,061 4,995 15,897 2,515 14,107 --
Non-Interest Income 4,534 1,754 2,865 (168) 4,530 1,135
Intersegment Income 2,869 (165) -- -- -- --
Significant Noncash Items
Provision for Loan Losses 5,519 157 1,641 -- -- --
Earnings (Loss) before Income Taxes 17,587 5,059 11,186 1,576 8,500 93
<CAPTION>
Intersegment YTD 2000
Total Segments Eliminations Consolidated Totals
----------------------------------------------------
<S> <C> <C> <C> <C>
Average Segment Assets $2,061,871 $ 54 (1) $2,061,925
Net Interest Income 55,575 2,808 (2) 58,383
Non-Interest Income 14,650 1,410 (3) 16,060
Intersegment Income 2,704 (2,704)(4) --
Significant Noncash Items
Provision for Loan Losses 7,317 -- 7,317
Earnings (Loss) before Income Taxes 44,001 (14,339)(3) 29,662
<CAPTION>
Consumer Residential Business Treasury Retail FirstTrust
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Segment Assets $630,050 $ 522,606 $470,766 $ 180,232 $53,134 $987
Net Interest Income 16,586 5,625 12,678 975 11,387 --
Non-Interest Income 5,115 822 3,163 4,538 3,408 696
Intersegment Income 6,163 4,719 (1,650) -- 733 --
Significant Noncash Items
Provision for Loan Losses 5,479 50 1,341 -- -- --
Earnings (Loss) before Income Taxes 19,803 5,369 9,208 4,774 3,469 (739)
<CAPTION>
Intersegment YTD 1999
Total Segments Eliminations Consolidated Totals
----------------------------------------------------
<S> <C> <C> <C> <C>
Average Segment Assets $1,857,775 $ 12,794 (1) $1,870,569
Net Interest Income 47,251 5,067 (2) 52,318
Non-Interest Income 17,742 2,610 (3) 20,352
Intersegment Income 9,965 (9,965)(4) --
Significant Noncash Items
Provision for Loan Losses 6,870 -- 6,870
Earnings (Loss) before Income Taxes 41,884 (15,638)(3) 26,246
</TABLE>
(1) Segment assets differ from consolidated assets due to reclassification
adjustments (primarily related to income tax assets) that are not reflected in
the management reporting system.
(2) The net interest income amounts in the segment results reflect not only the
actual interest income and expense from segment activities, but also amounts for
transfer income and expense to match fund each segment. Transfer income and
expense is assigned to each asset and liability based on the treasury yield
curve. These match funding entries are not made to the Corporation's actual
results.
(3) Represents income and expense items which are allocated to Corporate
overhead departments. These amounts are included in the Corporation's overall
results, but are not part of the management reporting system.
(4) Intersegment revenues are received by one segment for performing a service
for another segment. In the case of residential and consumer portfolios, an
amount is paid to the origination office which is capitalized in the portfolio
and amortized over a four-year period. These charges are similar to premiums
paid for the purchase of loans, and are treated as such for management
reporting. These entries are not made to the Corporation's actual results.
<PAGE>
Note 5 - Current Accounting Pronouncements
FASB Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133" was issued in June 1999. Statement No. 137
defers the effective date of Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" for one year. Statement No. 133, as amended,
is now effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000.
FASB Statement No. 133 generally requires that derivatives embedded in
hybrid instruments be separated from their host contracts and be accounted for
separately as derivative contracts. For instruments existing at the date of
adoption, Statement No. 133 provides an entity the option of not applying this
provision to such hybrid instruments entered into before January 1, 1998 and not
substantially modified thereafter. Consistent with the deferral of the effective
date for one year, Statement No. 137 also provides an entity the option of not
applying this provision to hybrid instruments entered into before January 1,
1998 or 1999 and not substantially modified thereafter. Management does not
expect the adoption of the standard will have a significant impact on the
financial condition or results of operations of the Corporation.
In September 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (a
replacement of FASB Statement No. 125)." The statement revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of the
provisions of Statement No. 125 without reconsideration. The statement is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001. Management does not expect the
adoption of the standard will have a significant impact on the financial
condition or results of operations of the Corporation.
Note 6 - Reclassifications
Certain amounts in the 1999 Condensed Consolidated Financial Statements
have been reclassified to conform to the 2000 presentation.
<PAGE>
Note 7 - Business Combination
On September 29, 2000, First Indiana acquired all of the outstanding
common stock of The Somerset Group, Inc. (Somerset). Somerset, based in
Indianapolis, Indiana, is a comprehensive financial services company offering a
number of specialty consulting and advisory services and investment and
insurance products to the general public. Somerset owned 22 percent of the
outstanding common stock of First Indiana prior to the acquisition. The
acquisition has been accounted for by the purchase method of accounting, and
accordingly, the financial results of Somerset have been included in First
Indiana's consolidated financial statements from the September 29, 2000
acquisition date. The purchase price of $67.2 million included the redemption of
2.8 million of First Indiana's common shares held by Somerset for $49.0 million.
Somerset's common shares were exchanged for a combination of 2.6 million First
Indiana common shares and $17.2 million in cash. The cash portion will be paid
subsequent to September 30, 2000. The excess of purchase price over the fair
value of the net identifiable assets acquired of $12.4 million has been recorded
as goodwill and is being amortized on a straight-line basis over 15 years.
<PAGE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Summary of Corporation's Results
First Indiana Corporation and subsidiaries had net earnings of
$6,470,000 for the third quarter of 2000, compared with net earnings of
$6,622,000 in the third quarter of 1999. Diluted earnings per share for the
three months ended September 30, 2000 were $0.50, compared with $0.52 per share
for the same period one year ago. Cash dividends for the third quarter of 2000
and 1999 were $0.14 and $0.13 per share of common stock outstanding,
respectively.
For the first nine months of 2000, net earnings were $18,166,000,
compared with $16,273,000 one year ago. For the nine months ended September 30,
2000, diluted earnings per share were $1.41, compared with $1.27 for the same
period one year ago. Cash dividends through the first nine months of 2000 and
1999 were $0.42 and $0.39 per share of common stock outstanding, respectively.
Annualized return on total average assets was 1.23 percent for the
three months ended September 30, 2000, compared with 1.38 percent one year ago.
For the nine months ended September 30, 2000, the Corporation's annualized
return on total average assets was 1.17 percent, compared with 1.16 percent for
the same period in 1999.
On September 29, 2000, First Indiana acquired all of the outstanding
common stock of The Somerset Group. Somerset owned 22 percent of the outstanding
common stock of First Indiana prior to the acquisition. The acquisition has been
accounted for by the purchase method of accounting, and accordingly, the
financial results of Somerset have been included in First Indiana's consolidated
financial statements from the September 29, 2000 acquisition date. The purchase
price of $67.2 million included the redemption of 2.8 million of First Indiana's
common shares held by Somerset for $49.0 million. Somerset's common shares were
exchanged for a combination of 2.6 million First Indiana common shares and $17.2
million in cash. The excess of purchase price over the fair value of the net
identifiable assets acquired of $12.4 million has been recorded as goodwill and
is being amortized on a straight-line basis over 15 years.
Net Interest Income
Net interest income was $19,861,000 for the three months ended
September 30, 2000, compared with $18,244,000 for the three months ended
September 30, 1999. For the nine months ended September 30, 2000, net interest
income was $58,383,000, compared with $52,318,000 for the nine months ended
September 30, 1999. In order to enhance net interest income, First Indiana has
targeted the consumer, business, and construction loan portfolios for growth in
2000 while de-emphasizing residential loan originations.
<PAGE>
Interest income for the third quarter of 2000 was $45,042,000, compared
with $37,545,000 for the three months ended September 30, 1999. Interest income
for the nine months ended September 30, 2000 was $128,482,000, compared with
$107,845,000 for the same period in 1999. The primary reason for the increase in
interest income is growth in earning assets, primarily loans. Loans outstanding
increased to $1,827,645,000 at September 30, 2000, compared with $1,642,820,000
one year earlier. At September 30, 2000, home equity loans outstanding were
$750,928,000, compared with $650,865,000 at September 30, 1999, a 15 percent
increase. Business loans were $295,947,000 at September 30, 2000, compared with
$208,129,000 one year earlier, a 42 percent increase.
Interest expense for the third quarter of 2000 was $25,181,000,
compared with $19,301,000 for the three months ended September 30, 1999.
Interest expense for the nine months ended September 30, 2000 and 1999 was
$70,099,000 and $55,527,000, respectively. The increase in interest expense is
related to an increase in costs of funds, accompanied by growth in
interest-bearing deposits of 15% and an increase in short-term borrowings
funding loan growth.
Net Interest Margin
The Corporation's yield on earning assets was 8.80 percent for the
third quarter of 2000, compared with 8.17 percent one year ago. For the nine
months ended September 30, 2000, the yield on earning assets was 8.60 percent,
compared with 8.09 percent for the same period in 1999. The cost of funds was
5.66 percent during the third quarter, compared with 4.79 percent one year ago.
For the nine months ended September 30, 2000, the cost of funds was 5.41
percent, compared with 4.79 percent for the same period in 1999. These changes
are related to the rising interest rate environment.
<PAGE>
Net interest margin consists of two components: interest-rate spread
and the contribution of interest-free funds (primarily capital and other
non-interest-bearing liabilities). The following analysis of net interest margin
reflects the Corporation's ability to generate net interest income resulting
from a prudent combination of assets and liabilities.
Net Interest Margin
Three Months Ended September 30,
(Dollars in Thousands) 2000 1999
--------------- --------------
Net Interest Income $ 19,861 $ 18,244
=============== ==============
Average Interest-Earning Assets $ 2,041,022 $ 1,828,934
Average Interest-Bearing Liabilities 1,771,307 1,596,843
--------------- --------------
Average Interest-Free Funds $ 269,715 $ 232,091
=============== ==============
Yield on Interest-Earning Assets 8.80 % 8.17 %
Cost of Interest-Bearing Liabilities 5.66 4.79
--------------- --------------
Interest-Rate Spread 3.14 3.38
Impact of Interest-Free Funds 0.75 0.61
--------------- --------------
Net Interest Margin 3.89 % 3.99 %
=============== ==============
Nine Months Ended September 30,
2000 1999
------------------------------------
(Dollars in Thousands)
Net Interest Income $ 58,383 $ 52,318
=============== ==============
Average Interest-Earning Assets $ 1,994,068 $ 1,780,807
Average Interest-Bearing Liabilities 1,731,073 1,550,433
--------------- --------------
Average Interest-Free Funds $ 262,995 $ 230,374
=============== ==============
Yield on Interest-Earning Assets 8.60 % 8.09 %
Cost of Interest-Bearing Liabilities 5.41 4.79
--------------- --------------
Interest-Rate Spread 3.19 3.30
Impact of Interest-Free Funds 0.71 0.62
--------------- --------------
Net Interest Margin 3.90 % 3.92 %
=============== ==============
Non-accruing delinquent loans have been included in average interest-earning
assets.
Margin has been closely monitored throughout the industry as recent
interest rate increases have put upward pressure on deposit and borrowing costs.
To counteract this, the Bank has focused efforts on prime-based business and
consumer lending, which helps ease the downward pressure on net interest margin.
A direct result of loan growth has been favorable gains in net interest income.
However, loan growth has outpaced deposit growth, causing an increase in
borrowed funds.
<PAGE>
Non-Performing Assets and Summary of Loan Loss and REO Experience
The following table analyzes the allowance for loan losses and REO for
the nine months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Allowance for Loan Losses REO Loss Allowance Loan & REO Loss Allowance
(Dollars in Thousands) 2000 1999 2000 1999 2000 1999
------------------------- ------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance of Loss Allowance at Beginning of Year $ 28,759 $ 25,700 $ 500 $ 500 $ 29,259 $ 26,200
Provision for Losses 7,317 6,870 (250) (481) 7,067 6,389
Charge-Offs - Residential (48) (22) -- (14) (48) (36)
- Consumer (3,394) (4,254) (13) (40) (3,407) (4,294)
- Construction (380) (208) (57) (10) (437) (218)
- Business (332) (348) -- -- (332) (348)
- Commercial Real Estate -- -- -- (79) -- (79)
Recoveries - Residential 6 -- 52 72 58 72
- Consumer 512 805 204 335 716 1,140
- Construction 97 214 64 141 161 355
- Business 131 8 -- -- 131 8
- Commercial Real Estate -- -- -- 76 -- 76
--------- --------- ------ ------ --------- ---------
Balance at September 30, $ 32,668 $ 28,765 $ 500 $ 500 $ 33,168 $ 29,265
========= ========= ====== ====== ========= =========
Ratio of Allowance for Loan Losses
to Loans Receivable 1.79% 1.75%
Ratio of REO Loss Allowance
to Real Estate Owned 16.22% 19.08%
Ratio of Total Loans and REO Loss Allowance
to Non-Performing Assets 123.44% 190.87%
</TABLE>
Non-performing assets were $26,425,000, or 1.24 percent of assets, at
September 30, 2000. This compares with $19,399,000, or 0.98 percent of assets,
at December 31, 1999 and $15,333,000, or 0.82 percent of assets, at September
30, 1999. This category includes non-accrual loans, real estate owned, and
impaired loans on which the Bank continues to accrue interest. Since December
31, 1999, the increase in non-performing assets consists of $4,377,000 in Home
Equity loans, $1,032,000 in Residential loans, $934,000 in Construction loans,
and $664,000 in Land Development loans. The increase in non-performing home
equity loans is due to increased defaults in loans secured by first liens.
Although defaults on these loans are higher, charge-offs have not increased
proportionately primarily due to the first lien position.
The Bank regularly reviews all non-performing assets to evaluate the
adequacy of the allowances for losses on loans and REO inherent in the loan
portfolio. The allowance for loan losses is maintained through a provision for
loan losses, which is charged to earnings. The provisions are determined in
conjunction with management's review and evaluation of current economic
conditions, changes in the character and size of the loan portfolio, estimated
charge-offs, and other pertinent information derived from a quarterly review of
the loan portfolio and REO properties.
<PAGE>
The provision recorded for the three and nine months ended September
30, 2000 is the result of management's ongoing evaluation of the adequacy of its
loan and real estate owned loss allowances and the changing composition of the
Corporation's loan portfolio and REO. Management will continue to evaluate the
adequacy of the provision and will adjust it, if necessary, based on the risk
inherent in the portfolio.
Non-Interest Income
Total non-interest income was $5,903,000 for the three months ended
September 30, 2000, compared with $8,043,000 for the same period in 1999. For
the nine months ended September 30, 2000 and 1999, total non-interest income was
$16,060,000 and $20,352,000, respectively. The decrease in non-interest income
was primarily due to a gain of $7,590,000 from the sale of the Evansville
division deposits during the third quarter of 1999.
The gain on sale of loans of $600,000 and $2,923,000 for the three and
nine month periods ended September 30, 2000 consists primarily of gains on the
sale of fixed-rate home equity loans, partially offset by losses on the sale of
residential mortgage loans. The gain on sale of loans for the three and nine
month periods ended September 30, 1999 was $441,000 and $5,009,000. Consumer
loan sales for the nine months ended September 30, 2000 were $188,403,000,
compared with $207,649,000 for the same period in 1999. A national network of
agents, coupled with a call center, has allowed the Bank to aggressively pursue
originations of home equity products with loan-to-value ratios of greater than
80 percent. The Bank processes and underwrites these loans and subsequently
sells them into the secondary market. In some cases, the Bank retains the
servicing rights on the home equity loan sales. Residential loan sales for the
nine months ended September 30, 2000 were $50,036,000, compared with
$389,980,000 for the same period in 1999. This decrease in residential loan
sales is consistent with the Bank's strategy related to de-emphasizing the
residential mortgage business, which resulted in fewer residential loan
originations.
Loan fees are down $512,000 for the nine months ended September 30,
2000 compared to the same period last year. As planned, originations of
residential construction and permanent mortgage loans are down from the same
period last year, resulting in the reduction of loan fees.
The consumer loan servicing portfolio was $336,559,000 at September 30,
2000, compared with $209,089,000 at September 30, 1999. The Corporation's
residential loan servicing portfolio amounted to $804,279,000 at September 30,
2000, compared with $853,139,000 at September 30, 1999.
Loan and deposit charges increased $368,000 and $1,182,000 for the
three and nine months ended September 30, 2000 compared with the same periods
last year, primarily as a result of the Bank's successful promotional campaigns
to acquire new checking accounts.
During the third quarter of 2000, the Bank recognized $1,197,000 on the
sale of loan servicing rights, compared to $905,000 from a first quarter 1999
sale.
<PAGE>
Non-Interest Expense
Total non-interest expense was $12,733,000 for the three months ended
September 30, 2000, compared with $13,806,000 for the same period in 1999.
Non-interest expense for the nine months ended September 30, 2000 and 1999 was
$37,464,000 and $39,554,000, respectively. Salaries and benefits decreased
$304,000 and $860,000 during the three and nine months ended September 30, 2000
compared to 1999. Occupancy expenses decreased $34,000 and $250,000 for the
three and nine months when compared with 1999. The decreases in both of these
categories are primarily due to the reduction in mortgage originations and the
sale of the Evansville division in the third quarter of 1999.
Deposit insurance premiums for the three and nine months ended
September 30, 2000 were $69,000 and $202,000, compared to $186,000 and $544,000
for the same periods in 1999. These reductions are due to a reduction in
premiums to realign thrift deposit insurance with that of banks.
Capital Resources and Liquidity
At September 30, 2000, shareholders' equity was $191,354,000, or 9.00
percent of total assets, compared with $177,103,000, or 8.95 percent, at
December 31, 1999 and $172,898,000, or 9.20 percent, at September 30, 1999.
The Corporation paid a quarterly dividend of $0.14 per common share on
September 19, 2000 to shareholders of record as of September 6, 2000. This
reflects a 7.7% increase from a quarterly dividend of $0.13 per share in 1999.
For the nine months ended September 30, 2000, the Corporation has paid $0.42 per
share in dividends, compared to $0.39 for the same period in 1999.
<PAGE>
The following table shows First Indiana Bank's strong capital levels
and compliance with all capital requirements at September 30, 2000. First
Indiana Bank is classified as "well-capitalized" under the OTS regulatory
framework for prompt corrective action, its highest classification. To be
categorized as well-capitalized, the Bank must maintain minimum total
risk-based, tier one risk-based and tier one leverage ratios as set forth in the
following table. This table reflects categories of assets includable under OTS
regulations. There are no conditions or events since the date of classification
that management believes have changed the Bank's category from well-capitalized.
<TABLE>
<CAPTION>
Capital Requirements
To be Well
Capitalized under OTS
September 30, 2000 For FDICIA Capital Prompt Corrective
(Dollars in Thousands) Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
----------------------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Indiana Bank Capital $170,482
Tangible Capital (1) 167,498 7.96 % $ 31,565 1.50 % n/a n/a
Core (Tier One) Capital 167,498 7.96 84,174 4.00 $105,218 5.00 %
Tier One Risk-Based Capital 167,498 9.58 n/a n/a 104,952 6.00
Total Risk-Based Capital (2) 187,899 10.74 139,936 8.00 174,919 10.00
</TABLE>
(1) First Indiana Bank capital differs from tangible capital by the FAS115
equity securities adjustment of ($17) and a goodwill adjustment of $3,001.
(2) Risk-based capital includes a $21,998 addition for general loan loss
reserves and a $1,597 deduction for land loans with loan-to-value ratios in
excess of 80 percent.
The Corporation conducts its business through its subsidiaries. The
main source of funds for the Corporation is dividends from the Bank. The
Corporation's two significant assets are its investment in the Bank and its
investment in Somerset Financial Services.
Regulations require the director of the OTS to set minimum liquidity
levels between four and 10 percent of assets. The requirement is currently set
at four percent. The Corporation's average liquidity ratio for the third quarter
of 2000 was 5.40 percent.
Financial Condition
Total assets at September 30, 2000, were $2,125,859,000, an increase of
$146,085,000 from $1,979,774,000 at December 31, 1999.
Net loans receivable at September 30, 2000, were $1,794,977,000,
compared with $1,673,422,000 at December 31, 1999. The predominant growth in
loans occurred in the targeted portfolios of business and consumer, both of
which increased from year-end 1999.
<PAGE>
Total deposits were $1,403,083,000 at September 30, 2000, compared with
$1,312,115,000 at December 31, 1999. This increase is primarily due to an
increase in the insured indexed money market savings products introduced in
December 1999 and 24-month and jumbo certificates of deposit, partially offset
by reductions in the balance of savings deposits. Non-interest-bearing deposits
consist of retail and commercial checking accounts, as well as official checking
accounts. Commercial checking accounts are expected to become a more significant
source of funds. Official checking accounts at September 30, 2000 and December
31, 1999 were $24,925,000 and $26,111,000, respectively.
Federal Home Loan Bank advances totaled $361,754,000 at September 30,
2000, compared with $366,854,000 at December 31, 1999. The Corporation also uses
short-term repurchase agreements as sources of funds. Borrowings will continue
to be used in the short run to compensate for periodic or other reductions in
deposits or inflows at less than projected levels, and long-term to support
lending activities.
Interest-Rate Sensitivity
First Indiana engages in rigorous, formal asset/liability management,
the objectives of which are to manage interest-rate risk, ensure adequate
liquidity, and coordinate sources and uses of funds. At September 30, 2000, the
Corporation's cumulative one-year interest-rate gap stood at a negative 0.01
percent.
<PAGE>
<TABLE>
<CAPTION>
The following schedule analyzes the difference in rate-sensitive assets
and liabilities or gap at September 30, 2000 and December 31, 1999.
Rate Sensitivity by Period of Maturity or Rate Change
September 30, 2000
Over 180 Over One
Percent Within 180 Days to Year to Over Five
(Dollars in Thousands) Rate Balance of Total Days One Year Five Years Years
----------------------------------------------------------------------------------
Interest-Earning Assets
Investments
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Securities and Other 7.24% $ 157,193 7.72% $ 69,212 $ - $ 66,390 $ 21,591
Mortgage-Backed Securities 6.97% 50,145 2.46% 4,440 4,212 27,228 14,265
Loans Receivable (1)
Residential Mortgage Loans 7.42% 509,686 25.05% 106,563 64,438 271,221 67,464
Commercial Real Estate & Land Development 9.93% 46,890 2.30% 18,890 3,237 17,955 6,808
Business Loans 9.52% 295,947 14.54% 216,626 7,615 56,579 15,127
Consumer Loans 9.77% 762,421 37.48% 307,524 40,241 226,739 187,917
Residential Construction Loans 9.54% 212,701 10.45% 193,610 9,862 9,229 -
---------------------------------------------------------------------------------
Total Interest-Earning Assets 8.76% $ 2,034,983 100.00% 916,865 129,605 675,341 313,172
==================================
Interest-Bearing Liabilities
Deposits
Demand Deposits (2) 1.58% $ 111,515 6.32% 19,198 - - 92,317
Passbook Deposits (3) 1.94% 36,862 2.09% 1,769 907 7,258 26,928
Money Market Savings 5.00% 338,463 19.19% 338,463 - - -
Jumbo Certificates 6.58% 332,683 18.86% 91,383 49,667 191,633 -
Fixed-Rate Certificates 6.07% 469,017 26.59% 118,983 122,726 227,308 -
---------------------------------------------------------------------------------
Total Deposits 5.39% 1,288,540 73.05% 569,796 173,300 426,199 119,245
Borrowings
FHLB Advances 6.31% 361,754 20.51% 190,000 - 165,000 6,754
Short-Term Borrowings 6.07% 113,608 6.44% 113,608 - - -
---------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 5.62% 1,763,902 100.00% 873,404 173,300 591,199 125,999
========= ===========
Net - Other (4) 271,081 271,081
-------------- ------------------------------------------------
Total $ 2,034,983 873,404 173,300 591,199 397,080
==============
------------------------------------------------
Rate Sensitivity Gap $ 43,461 $ (43,695) $ 84,142 $ (83,908)
================================================
September 30, 2000 Cumulative Rate $ 43,461 $ (234) $ 83,908
Sensitivity GAP ====================================
Percent of Total Interest-Earning Assets 2.14% (0.01%) 4.12%
====================================
December 31, 1999 Cumulative Rate $ (101,665) $ (162,521) $ 184,713
Sensitivity GAP ====================================
Percent of Total Interest-Earning Assets (5.32%) (8.50%) 9.67%
====================================
</TABLE>
(1) The distribution of fixed-rate loans is based upon contractual maturity
and scheduled contractual repayment adjusted for estimated prepayments.
For adjustable-rate loans, interest rates adjust at intervals of six
months to five years. Included in Consumer Loans are $63,781 of Home
Equity Loans Held for Sale. Included in Residential Loans are $440 of
Residential Loans Held for Sale.
(2) These deposits have been included in the Over Five Years category to
reflect management's assumption that these accounts are not
rate-sensitive. This assumption is based upon historic trends of these
deposits through periods of significant increases and decreases in
interest rates without changes in rates paid on these deposits. Included
in this category are NOW and money market checking deposits. The rate
represents a blended rate on all deposit types in the category.
(3) A portion of these deposits have been included in the Over Five Years
category to reflect management's assumption that these accounts are not
rate-sensitive. This assumption is based upon the historic minimal decay
rates on these types of deposits experienced through periods of
significant increases and decreases in interest rates without changes in
rates paid on these deposits.
(4) Net - Other is the excess of other non-interest-bearing liabilities and
capital over other non-interest-bearing assets.
<PAGE>
Disclosures About Market Risk
The Corporation's success is largely dependent upon its ability to
manage interest-rate risk, which is defined as the exposure of the Corporation's
net interest income and net earnings to changes in interest rates. The Bank's
Asset/Liability Committee ("ALCO") is responsible for managing interest-rate
risk and the Corporation has established acceptable limits for interest-rate
exposure, which are reviewed on a monthly basis. The Bank uses a model which
measures interest-rate sensitivity to determine the impact on net earnings of
immediate and sustained upward and downward movements in interest rates.
Incorporated into the model are assumptions regarding the current and
anticipated interest rate environment, estimated prepayment rates of certain
assets and liabilities, forecasted loan and deposit originations, contractual
maturities, and renewal rates on certificates of deposits, estimated borrowing
needs, anticipated loan loss provision, projected secondary marketing gains and
losses, expected repricing spreads on variable-rate products, and contractual
maturities and repayments on lending and investment products. The model
incorporates interest-rate sensitive instruments which are held to maturity or
available for sale. The Bank has no trading assets. Based on the information and
assumptions in effect at September 30, 2000, management believes that a 100
basis point increase in interest rates would result in a 1.6 percent decrease in
annual net interest income. A 100 basis point decrease in interest rates would
result in a 3.0 percent decrease in annual net interest income. Because of the
numerous assumptions used in the computation of interest-rate sensitivity, and
the fact that the model does not assume any actions the ALCO could take in
response to the change in interest rates, the results should not be relied upon
as indicative of actual results.
Historically the Bank enters into forward sales contracts for future
delivery of residential fixed-rate mortgage loans at a specified yield in order
to limit market risk associated with its pipeline of residential mortgage loans
held for sale and commitments to fund residential mortgage loans. Market risk
arises from the possible inability of either party to comply with the contract
terms. The Bank designates these forward sales contracts as hedges. To qualify
as a hedge, the forward sales contract must be effective in reducing the market
risk of the identified anticipated residential mortgage loan sale which is
probable to occur. Effectiveness is evaluated on an ongoing basis through
analysis of the residential mortgage loan pipeline position. Commitments under
these forward sales contracts and the underlying residential mortgage loans are
valued, and the net position is carried at the lower of cost or market.
Unrecognized gains and losses on these forward sales contracts are generally
immaterial and are charged to current earnings as an adjustment to the gain or
loss on residential mortgage loan sales when realized, or when the contract
matures or is terminated.
<PAGE>
Other Information
Items 1, 2 , and 3 are not applicable.
Item 4. Submission of Matters to Vote of Security Holders.
At a Special Meeting of Stockholders of First Indiana
Corporation held on September 26, 2000, stockholders voted on
the proposal to approve the merger of The Somerset Group,
Inc., an Indiana corporation and the owner of approximately
22% of the outstanding common stock of First Indiana
Corporation, with and into First Indiana Corporation and to
approve the Agreement and Plan of Reorganization by and
between First Indiana and Somerset dated as of April 19, 2000.
Votes For Votes Against Votes Withheld
--------------------- ----------------------- ----------------
8,365,532.836 115,030.68 18,783.06
Item 5. Statements contained in this presentation that are not
historical facts may constitute forward-looking statements
(within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended) which involve significant risks and
uncertainties. The Corporation intends such forward-looking
statements to be covered in the Private Securities Litigation
Reform Act of 1995, and is including this statement for purposes
of invoking these safe-harbor provisions. The Corporation's
ability to predict results or the actual effect of future plans
or strategies is inherently uncertain, and involves a number of
risks and uncertainties. In particular, among the factors that
could cause actual results to differ materially are general
business and economic conditions, competitive and regulatory
factors, credit risks of lending activities, and interest rates.
The fact that there are various risks and uncertainties should be
considered in evaluating forward-looking statements, and undue
reliance should not be placed on such statements. The Corporation
undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
<PAGE>
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits - Financial Data Schedule
(b) Reports on Form 8-K - No Forms 8-K were filed during the
three months ended September 30, 2000.
(c) On October 4, 2000, a Form 8-K was filed related to the
Somerset Merger.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Indiana Corporation
November 10, 2000 /s/ Owen B. Melton, Jr.
------------------------------------------
Owen B. Melton, Jr.
President
November 10, 2000 /s/ William J. Brunner
------------------------------------------
William J. Brunner
Vice President and Treasurer
